Posts tagged ‘greece’

At 1530GMT/ 1030 ET Europe’s finance ministers will meet and hopefully agree that Athens’ latest austerity efforts are good enough for them to receive their second bailout from the IMF/ EU and ECB. But as we start the European session we are seeing a bit of a pullback in risk after a strong start during the Asia session.

Right now this is a very normal pullback. The US is out on holiday today and as we enter European trading hours headline risk has massively increased, so investors are booking profits where they can. This has seen EURUSD back away from 1.3240 high and AUDUSD climb down from 1.08, although uptrends remain intact. While the markets lie in wait for the Eurozone finance ministers’ meeting later this afternoon we need to take our cue from the technical signals. In EURUSD any pullback to the 1.3150 level is normal, but below there then the fundamental back drop is likely to have changed for the worse (negative headlines from Greece or the Eurozone’s finance ministers’ meeting).

The outcome of today’s meeting is likely to define the performance of risk assets for the rest of the week. Right now the markets are not priced for an outright collapse of talks between Greece and the Eurozone finance ministers, but there are still many hurdles on the road to Greece paying its EUR14.5bn bond redemption payment on March 20th. Even the chair of the Eurogroup Juncker has said that ‘much negotiation’ is still needed.

Firstly at this meeting the PSI deal is expected to be agreed, the ECB’s position regarding the debt swap is also expected to be formalised and the Eurozone authorities need to be happy that Greece will implement the harshest austerity measures yet and will stick with its bailout conditions regardless of the outcome of April’s elections.

The PSI discussions took an interesting turn at the weekend. It was announced that the ECB would participate in the bond swap with Greece, but it would not face Collective Action Clauses (CACS), unlike other holders of Greek debt. Essentially European authorities can force losses on private bond holders but not on the ECB. I wrote about this yesterday and quoted Pimco chairman Bill Gross who said that this threatened the integrity not just of Greek bonds but of bonds across the entire Eurozone. But this has fallen on deaf ears this morning and Italian bonds have opened higher this morning (yields lower). Even Portugal, which has been targeted as the most at risk Eurozone nation after Greece, has seen its bond yields fall this morning. Thus, if today’s meeting finalises the details of the PSI negotiations then the market may concentrate on the CAC/ no CAC ECB debate, which has the potential to dampen sentiment.

There is also some confusion over whether Greece will get all of its bailout funds or if funds will be withheld until after the April elections. This is the line of action being pursued by the Dutch authorities. The other option is that a portion of Greek bailout funds are placed in an escrow account so that they are used to pay bond redemptions and can’t be used to fund public spending. This would limit Greece’s sovereignty over its own budgets, but would reduce the risk of a third or fourth bailout somewhere down the line.

So the discussions this afternoon could be long and messy and we don’t know for sure if Greece will get the funds it needs. But for now the markets believe it will hence the bullish tone to markets this morning and asset classes are moving higher in unison.

The China RRR cut on Saturday helped to boost sentiment during the Asia session as yet central bank pumps liquidity back into its economy. The US is out on holiday today and US stock markets are not open, so expect the emphasis to be squarely on Greece later.

Euro continues to flip flop against dollar with a soft tone on news from Greece. On the one hand, it’s reported that the EU group meeting will be replaced by a conference call as final details regarding the Greek bailout plan are not yet ready. According to Jean-Claude Juncker, the change was due to the situation that ‘there weren’t sufficient elements of consensus to be sure that a meeting would be successful’. He also noted he has not yet received the required political assurances from the leaders of the Greek coalition parties on the implementation of the program. On the other hand, after the change on the EU meeting, it’s reported that political leaders from Greece would promise to implement the austerity Wednesday. The news helped DOW staged a late rebound to close nearly flat and set the stage for strength in Asian equities.

In Asia, sentiments were generally lifted as China pledged to invest in European bailouts. Chinese Premier Wen Jiabao said yesterday at a joint press conference with EU President Van Rompuy that “China is ready to get more deeply involved in participating in solving the European debt issue.” This is echoed by PBoC Governor Zhou xiaochuan today as he said that “China will always adhere to the principle of holding assets of EU sovereign debt” and “would participate in resolving the euro debt crisis”. This is seen as a commitment from China that at least it won’t be cutting European bond holdings and would instead look for opportunities to invest more.

Data released today so far is positive with New Zealand retail sales rose more than expected by 2.2% qoq in Q4 while Australia Westpac consumer confidence rose 4.2% in February. A number of key economic data will be released today included Q4 GDP data from Eurozone countries, UK job data, BoE inflation report, Swiss EW, US manufacturing data as well as FOMC minutes. Be prepared for a busy ride!

After the Greek Parliament approval of the austerity measures package, now it’s time for the EU finance ministers to discuss about the second bailout details. The meeting will take place on Wednesday, the same day some reports expect the PSI deal to be closed.

“We see a Greek deal as a ‘must do’ event to avoid a disorderly Greek default but not necessarily as a source of significant boost for the euro”, says Vassili Serebriakov, currency strategist at the Wells Fargo Bank, that still points to risk assets’ strength: “We also maintain a bullish medium-term bias on commodity and emerging currencies, although we would be more careful about entry levels given their recent rapid gains”.

The rally in the single currency sparked in mid January seems to be in a wait-and-see mode since early February. The Greek front – parliamentary vote on Sunday on the extra austerity measures, PSI talks, bailout package, domestic unrests – has been, and it is, the main driver in the evolution of the FX markets as of late, and this week appears to be the “make-or-break” one regarding the relation between the bloc currency and Greece.
by UBS

The euro-group finance ministers meeting on February 15 has been pointed to be the deadline as the “troika” could decide whether to release the next tranche of the bailout package, vital to honour the debt rollover expiring on March 20.

M.Mohi-uddin, Managing Director of Foreign Exchange Strategy at UBS, remarks that a positive outcome from Greece will be supportive of the shared currency, at least until the second LTRO, due on February 29. So, what lies beyond the end of February? The expert remains conservative on the euro, as the ECB has hinted the likelihood of further rate cuts if the economic conditions in the bloc worsen, spilling their effects over the prices.

Reinforcing the above, members of the euro zone already embarked in more austerity measures could see their economic growth undermined in the upcoming quarters and also political risks are looming with Greece and France holding elections in the next months.

All in all, a not-so-cheerful panorama is lying ahead for the euro. “As a result we continue to see the euro ending the year at 1.15 against the dollar”, the analyst stressed.

Another week has passed without seeing an agreement between Greece and private sector bondholders over the size of losses to be bared by creditors and interest on the new loan.

Athens is struggling to reach a debt-swap deal, raising concerns the debt-mired nations may face default as early as in March when 14.5 billion euros of debt matures.

A report by Bloomberg on Wednesday said Greece and its creditors may reach an agreement with a loss of 70% for a lower borrowing cost of 3.6% instead of 4.25% on 30-year bills, where, in return, a rebound in Greek growth would make the pay to bondholders higher as a compensation for accepting a loss in net present value terms by an estimated 0.5 to 3 percentage points.

Josef Ackermann, chairman of a banking group in negotiations with Greece, said on Thursday a deal with private sector creditors may take place “in the next few days.”

However, it seems that even if a deal is reached, this will not be the end of trouble or a serious step toward solving the Greek debt agony as it will continue its trip of repaying debt over the coming years while cutting spending and raising taxes further to become eligible for receiving a second bailout worth 130 billion euros.

Greek Prime Minister Lucas Papademos is currently looking for support from political leaders to launch further austerity and reforms needed to convince international lenders to give Greece a second bailout announced in October.

With no agreement reached so far, the euro is heading for a weekly loss versus the green currency this week after rising the previous two weeks.

Regarding fundamentals from Europe, after the release of upbeat manufacturing data from major economies this week, eyes will track the progress in the services when Germany, euro area, U.K. and U.S. release services data.

Services data from China released today showed that the expansion pace eased to in January to 52.9 compared with the prior reading of 56.0.

Yet, the main highlight of the day will be the awaited non-farm payrolls report from the U.S. due at 13:30 GMT. The change in non-farm payrolls is predicted to retreat to 140,000 in January from 200,000 in December, while unemployment will linger at 8.5%

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